Havana, Cuba | Source: Shutterstock

HAVANA, April 29th Prowling around the boutique at Havana’s Hotel Nacional de Cuba, well-heeled tourists would probably never suspect that the lustrous jewellery on display by Cuban brand Rox 950 is churned out from a makeshift factory in a charming but chaotic Havana apartment overflowing with 35 employees.

Rosana Vargas, the ambitious designer behind the brand, produces upwards of 500 artisanal pieces a month from her space in Cuba’s capital city, bringing in monthly revenue of about 20,000 Cuban convertible pesos (CUC). Given that the currency is pegged at a 1:1 exchange rate to the US dollar, the scale of Vargas’s silver jewellery business is an impressive feat in a country where capitalism was until recently a dirty word.

Vargas explains that regulations on property operated by private businesses in Cuba means that, for now, she is confined to her three-bedroom apartment-turned-factory. After five years on the market, Vargas is sold in over 10 locations across Cuba, including resort hotels and the state-run Artex chain. Now, she is in talks with a US-based distributor.

“We’re currently only selling about 50 percent of what we’re producing, and production is not yet where I need it to be. The main objective is to keep scaling production in order to have sufficient inventory to export. I can’t show up to a meeting with a potential distributor with empty hands,” explains Vargas.

A New Era for Business

The US trade embargo — known locally as “el bloqueo” — has blighted Cuba for over half a century and, despite the recent thaw in relations between the two countries, is still active. However, after President Obama began amending certain economic sanctions last year, some goods produced by independent Cubancuentapropistas (entrepreneurs) are now authorised for export.

Rox 950 jewellery | Source: Fotos Titina

Nevertheless, the flow of consumer goods leaving the country is still minimal andcuentapropistas must abide by certain constraints, says Marguerite Fitzgerald, a partner at The Boston Consulting Group (BCG) and author of the firm’s most recent report on Cuba.

“They must be able to prove that they are, in fact, independent businesses — they can’t have any connection with the Cuban government [and] there are restrictions on the type of goods that they can export,” she says. Artisanal products like clothing, shoes and accessories are permitted, she explains, while prohibited items include food products, vehicles and machinery.

Vargas is representative of a growing entrepreneurial spirit in Cuba, which until a few years ago, presented a much more challenging business environment. A series of market-based reforms kicking off in 2010 meant that cuentapropistas could hire up to 25 more employees across an expanded range of businesses and that some government regulations have been relaxed.

According to BCG’s report, the number of cuentapropistas has more than tripled since the new regulations. The firm estimates that Cuba’s economy will grow by 2 to 4 percent over the next five years. If meaningful reforms continue and US restrictions are further eased, there is potential for faster growth over the long term.

Cuba’s economy is small — about the size of Sri Lanka or the US state of Hawaii — and although it is still dominated by state-run enterprise, the reforms represent a major shift for a country that ran a planned, closed economy and whose communist government had a hostile relationship with the US for decades.

According to some market analysts, Cuba’s growing engagement with the outside world is not only a new era for local entrepreneurs but also for multinational brands hoping to one day enter the market. Behind the scenes many big firms are carefully exploring their options or making quiet overtures. One of the most open and symbolic gestures from the fashion sector so far is by the luxury brand Chanel, which is set to show its cruise collection in Havana on May 2.

“I think it’s great that Chanel is coming to show in Cuba [and] I’m looking forward to seeing what [Karl Lagerfeld’s] vision of the island is, [but] if you stop someone on the street, there’s a high chance they wouldn’t be able to tell you who Chanel is, and they probably wouldn’t know that Chanel is coming here to do a runway show,” says Cuban fashion designer Rolando Rius.

Rius, who owns a womenswear brand called Ryo, won’t be among the band of international celebrities, fashion editors and supermodels attending the much-anticipated spectacle. Indeed, the vast majority of the 11 million Cubans on the tropical island would never dream of purchasing from a brand with Chanel’s stratospheric prices. Most industry experts agree that the show will treat Cuba as a backdrop rather than as a market to enter any time soon.

Yet, Cuba isn’t exactly a stranger to luxury fashion. Before Fidel Castro took power in 1959, the Caribbean island attracted couturiers like Christian Dior to open one of his first boutiques in the Americas at the El Encanto department store in Havana. But following half a century under communist rule, the opulence that once characterised Cuba is no more. In its place is an island of faded grandeur, marketed as a country somehow frozen in time, attracting the global fashion industry as a location for glamorous and charming photo shoots.

While Vanity Fair, W Magazine, Marie Claire, and now, Chanel all flock to Cuba to take delight in its picturesque settings, enterprising Cuban designers such as Vargas and Rius have been hustling for decades to keep Cuba’s fashion industry alive and incubating a fashion ecosystem that industry leaders abroad would find both foreign and familiar.

Unique Challenges and Obstacles
One of the biggest obstacles facing Cuban entrepreneurs like José Luis González is the high price of materials. González started his own womenswear brand, Modarte, following 25 years working for Cuba’s state textile industry sector specialising in the embellishment and painting of fabrics.

Ryo by Rolando Rius | Source: Courtesy

“Buying fabric from state-owned stores is extremely expensive. I often work with chiffon because I like the way it drapes, and it will cost about five CUC per metre for a solid colour. When I have the chance to go to Italy, which is the last importation I did, it costs a fraction of the price, maybe a few cents per meter,” González explains.

Complicated import tax regulations, duty increases and a lack of distinction between retail and wholesale operations by some Cuban authorities are a few challenges cuentapropistasface, he says.

González, Rius and Vargas sell to a small, exclusive group of high spending customers in Cuba. González’s collections can be purchased at state-owned stores Artex and El Fondo Cubano De Vienes Culturales. Working with a small staff of sewers, González produces roughly 100 pieces every two or three months which he claims sell out fast due to presales and high demand.

Rius’ collection also includes accessories, ranging in price anywhere from 40 or 50 CUC for jewellery and up to 80 or 90 CUC for a handbag. Such prices may seem reasonable or even a bargain to shoppers in the US or Europe, but in a country where the World Bank estimates GDP per capita to be around $6,000, they are out of reach for the majority of Cubans. Fashion cuentapropistas serve a small market niche who recognise or at least follow international luxury brands but are limited by access, information and price.

“[Watching] the latest runway show [online] for example, can be difficult. To be informed 100 percent is difficult, but there are a lot of people who do and try their best [though] it’s a minority,” Rius explains. While up to 30 percent of Cubans have access to government-regulated intranet, only a small fraction of these can access the global internet, according to a 2015 report by US watchdog organisation Freedom House.

The cultural gap left by decades of relative isolation makes life harder for some fashion cuentapropistas but, for others, it is a business opportunity in Cuba’s close-knit and underdeveloped fashion industry.

Juan Carlos Urquiola, a former model himself, trains aspiring models in his school, La Academia de Modelaje de Actuar. Besides coaching his students on walking, posing and how to wear a dress or a suit, “a big part of it is teaching them how to act properly and telling them that the world of fashion is different. Once they enter it, things will change and they won’t think the same way as some of their friends from their neighbourhoods,” says Urquiola, who is in charge of castings for major cultural events like the state-sponsored FIMAE, a convention for the fashion, furniture and interior industries, which will take place in Havana in June.

The Seeds of Brand Awareness

Ryo by Rolando Rius | Source: Courtesy

“With all the recent changes, people sometimes look at Cuba and sort of think that we were completely shut off from the world before, which isn’t true,” says González, who believes that affordable multinational brands do have a future in the market. Fast fashion brands such as Mango, Benetton and Zara have brand recognition because their merchandise can be found at state owned stores — apparently via intermediaries. Meanwhile, branded clothing has long been available from vendors in Havana’s famous black markets, like La Cuevita.

A young population is also readily influenced by Cuban rappers and baseball players who may be seen sporting designer brands. “The regetón singers who make a lot of money and travel [abroad] are kind of like the role models for a lot of young people. They go out and buy Gucci and D&G and Armani, and those young people see them and regard them as the best dressed people. So some recognise these brands,” says Rius.

A more recent phenomenon called El Paquete (“the package”) is rapidly increasing Western brand awareness in Cuba through entertainment. A weekly compilation of US and other foreign television shows, series, movies and fashion magazines are delivered to Cubans’ homes on a hard drive or USB disk for the equivalent of US $2 to $5. Although illegal, it has been largely tolerated by the government and, according to some estimates, reaches around 70 percent of the population.

Hugo Cancio is the Cuban-American entrepreneur who founded Fuego Enterprises and OnCuba, two widely distributed Cuban media outlets. He sees El Paquete as an important indicator of changing tides in Cuba. “Cubans…are now starting to know how people dress abroad [and] worry about their personal image and [how] they improve it. So when you have family members bringing a gift [from abroad] they might say…bring me some Calvin Klein Jeans or some Gucci,” Cancio explains.

Cancio describes a “completely new Cuba” of private businesses, restaurants and bars, the majority of which procure investment from the Cuban diaspora abroad, returnees or relatives and friends in places like Miami whose families fled Cuba in earlier years. This new commercial atmosphere is one where ambitious localcuentapropistas like Vargas, Rius and González are now able to build small but substantial businesses despite the many barriers they face.

Continued progress is dependent on foreign investment, market liberalisation, rising wages, retail and infrastructure development and economic growth — none of which is a foregone conclusion in this new Cuba. With Cuban leader Raúl Castro expected to step down in 2018, it creates further uncertainty not only for the pace of domestic reforms but also for Cuba’s complex, evolving relationship with the United States and the halo effect of its international partners.

”I have no idea what all of these changes with the US will lead to,” says Rius. “We can hope for some sort of exchange of information and ideas, but I really don’t know.”

As the authors of the BCG report concluded, Cuba’s market evolution is “intriguing” although there has not been enough progress yet to present “a momentous opportunity.” But this hasn’t dented optimistic cuentapropistas like Rius, González, and Vargas, who are for the first time in decades witnessing the world get excited about doing business with their country.

http://www.businessoffashion.com/articles/global-currents/cuba-havana-fashion-cuentapropistas-entrepeneurs-emerging-markets